Ukraine said Russian forces had "fully occupied" a town south of the strategically important city of Lysychansk in the eastern Luhansk region as of Friday, and Moscow claimed it had encircled about 2,000 Ukrainian troops in the area.

The loss of Hirske and several other settlements around it leaves Lysychansk, the last major Ukrainian-controlled city in Luhansk, in danger of being enveloped from three sides by advancing Russian forces.

"Unfortunately, as of today... the entire Hirske district is occupied," Hirske's municipal head Oleksiy Babchenko said in a television broadcast. "There are some insignificant, local battles going on at the outskirts, but the enemy has entered."

"There is a red flag flying over the municipal administration (in Hirske)," a spokesperson for the regional administration told Reuters by telephone.

Russia's defense ministry said on Friday it had encircled up to 2,000 Ukrainian troops, including 80 foreign fighters, at Hirske. Reuters could not independently verify the report.

The spokesperson for the regional administration declined to comment on the assertion.

In its daily briefing on Friday, Russia's defense ministry said its forces had "completely isolated" a group of Ukrainian units near Hirske and Zolote. It said it had encircled four Ukrainian battalions, an artillery group and a "detachment of foreign mercenaries."

Half of Zolote is under Russian control, it said, adding that it was launching "uninterrupted attacks" around encircled Ukrainian forces at Hirske.

Ukraine said on Friday its troops were withdrawing from Lysychansk's sister city Sievierodonetsk, the scene of weeks of intense bombardments and street fighting, in what would be a significant setback in its struggle to defeat Russian forces.

"Our forces had to withdraw and conduct a tactical retreat because there was essentially nothing left there to defend. There was no city left there and, secondly, we could not allow them to be encircled," said Oleksander Musiyenko, a Kyiv-based military analyst.